On Friday, August 21, a New York federal appeals court ruled that a webcasting services that let listeners create taste-customizable "radio stations" (like Pandora) don't have to pay individual, per-song licensing fees to sound copyright holders (most often the labels).

The decision at the U.S. Second Circuit Court of Appeals makes a clear distinction between so-called "interactive services," which let users choose what song is streamed "on-demand," and the increasingly popular "predictive radio" stations like Pandora, which allow users to create and modify stations based on their tastes (and the recommendation engines of those services). Instead of licensing each song separately, non-interactive webcasters will pay a statutory licensing fee set by the Copyright Royalty Board.

Essentially, the court upheld a 2007 jury verdict that Launchcast -- a webcasting company owned and operated by Yahoo! -- did not provide listeners enough control to be considered "interactive." This means that Launch Media Inc. will not need to negotiate separate licenses for the music it uses for its service.

Plaintiffs in the case included Arista Records, Bad Boy Records, BMG Music, Capital Records, Motown Records and Virgin Records America Inc. Counsel for these labels argued that taste-customizable stations did require an individual license. The Second Circuit Court's precedent-setting ruling means that these digital streams trigger a public performance royalty, to be collected and distributed to performing artists and sound copyright holders via SoundExchange. (A performance royalty is also paid to songwriters and publishers for the underlying compositions in any music streamed.)

While the decision probably doesn't sit well with the big labels, it's no doubt being celebrated by webcasters -- particularly those who offer recommendation-based playlists based on listening history and user "likes" and "dislikes." This decision, combined with a July 2009 rates agreement between SoundExchange and the so-called "pure play" webcasters, means that popular services like Pandora, Slacker and Last.fm will live to broadcast another day. We think this is good news for fans and artists who increasingly depend on these mediums for exposure and discovery.